Hedge funds is one of those common phrases that you hear in issues relating to business.
Investopedia more or less defines hedge funds as pooled funds that use a number of strategies (aggressive management and derivative trading to name a few) to generate high returns.
Hedge funds appear to be some form of collective investment scheme, yet no mention is made of them at all in chapter 18. The definition offers a possible explanation for their omission: they make use of risky strategies to generate high returns. The nature of these funds are perhaps inappropriate for pension funds and insurers to use as major investment vehicles.
A report by a German asset and wealth manager mentioned that insurers invest minimal amounts in hedge funds due to the amount of solvency capital that has to be held due to the limited liquidity and transparency of the schemes. The report did however, that they could become accessible if appropriate changes are made in the insurance environment.
Closer to home, a moneyweb article, published recently, suggested that local based pension funds could and should increase their allocation of funds in alternative investments such as hedge funds. High fees, a lack of preservation of funds and a national average Net Replacement Ratio of 12% were used to support this view.